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In this podcast we will discuss how the new climate change legislation will affect low-income households. I’m Michelle Bazie and I’m joined by the Center’s Chief Economist, Chad Stone.

1. Chad, Senators John Kerry and Joe Lieberman brought climate policy back to life when they unveiled their American Power Act on May 12th. How does this legislation address global warming?

It addresses global warming by making it more expensive to continue burning coal, natural gas, and oil to produce energy. The bill sets annual limits – or caps — that restrict allowable greenhouse gas emissions. Those restrictions raise the cost of fossil energy. This puts a price on carbon, which creates economic incentives for businesses and households to find the most cost-effective ways to reduce their carbon footprints. The end result is lower emissions and less global warming.

2. That sounds good for the environment, but won’t low-income households be particularly vulnerable to the squeeze on their wallets from these higher energy-related prices? Did the Senators do a good job of protecting these households from these increased costs?

They did. The Kerry-Lieberman bill includes a robust program of direct payments, or “energy refunds” for low-income households that is very similar to the bill passed by the House of Representatives last year. Those refunds are large enough to protect the typical household in the poorest 20 percent of the population from incurring a financial loss as a result of the policies necessary to reduce greenhouse-gas emissions.

3. You mentioned that these higher costs won’t affect the poorest 20 percent of the population due to the energy refunds. What constitutes the poorest 20 percent? Who are we talking about?

The poorest 20 percent of the population consists of households with incomes below roughly 150 percent of the poverty line, or about $33,000 for a family of four.

4. Walk us through the basics of the low-income protection provisions.

There are three main highlights:

First, households with incomes at or below 150 percent of the poverty line will be eligible to receive monthly energy refunds by direct deposit or through states’ electronic benefit transfer – or EBT systems. These are the debit-card systems states already use to deliver food stamps and other federal benefits.

Second, households that receive food stamps, as well as low-income seniors and people with disabilities who participate in the Supplemental Security Income program, will be enrolled for the energy refunds automatically.

Third, households with slightly higher incomes —about $33,000 -$55,000 a year for a family of four — will be eligible for a smaller tax credit. The credit will be refundable, meaning that if the amount of a family’s credit exceeds its income tax liability, it can receive the difference in the form of a refund check.

5. What’s the bottom line?

The low-income provisions in Kerry-Lieberman bill are well-designed. They show that climate legislation can fight global warming without driving more people into poverty.